Phew

After the trepidation from last sunday I seem to have survived the week with the requisite number of limbs, and if the data from my Feudal Masters is to be believed, largely without dropping vast amounts of performance. We still have to see Friday’s numbers, however, and that seemed a bit icky when I left, but that was early in the evening and the markets bounced around a bit afterwards, so who knows.

More thoughts in the order thrown up by throwing up:

  • hedgies are getting their butts kicked, apparently, but not only the CDO crowd. The Bad Kind of hedgies, the Gaussian Quants, are finding their models have turned toxic. Megastars GS Alpha, Renaissance, are both down 8% in last few weeks. Bookstaber’s book (which my wife keeps stealing) has a useful bit about how these strategies came about. All the people who use regression to discover “relationships” between stocks and exploit time lags in trading with superfast trading programmes are unwinding their trades at the same time. The exits are narrow in August, sadly. I imagine there is a redemption cycle going on. Like so many things for someone who is as habitually correct as me, it is grist to my (and Taleb’s) mill: Standard Deviation (for that is what these guys largely rely on) is a deviation from reality. The Long Short fundie crowd seems OK.
  • for all that volatility, we actually ended the week largely where we started on the major indices; given that nothing horrible has actually happened to us yet, is it reasonable to expect a Fed bailout anytime soon?
  • I wasn’t 35% hedged when I got into work monday; more like 20%. Unbeknownst to me other my dear colleague (not Bento) had gone off and bought a bunch of stuff the week before, plus something complicated happened about some options. Much scrambling ensued, and NOW I am at 35%-40%. Just in time for the rally next week, no doubt.
  • Why don’t more people do fundamental analysis? It is much harder to blow up a diversified fundie fund. Is the main reason that is so much more work
  • Will I be getting any of the money coming out of stat arb (quant) strategies? There’s no point asking about the asset backed arb (ie CDO)funds, I shouldn’t think there’s any money left. Tech has actually outperformed in the week, as financials and cyclicals freak everyone out, and we’re ahead of seasonally the strongest period for the space. Normally tech tanks at the slightest hint of risk aversion. My stocks have product cycles in their favour, have diversified global customer bases, loads of cash. Yay!
  • Except I was reading that the main reason my mid- and small cap techs have done better is that the Quant guys have been largely short them in a long big, short small cap trade; as they are forced to unwind the trade they have to buy my stocks. As soon as they finish, goes the theory, the bids disappear, and I get my head chopped off and shoved up my bum for good measure. Oh dear.

What do you think, Bento my dear chap? Am I cruising for a bruising? All I care is that I get through next week without blowing up, whereupon my other colleague takes over and I tootle off to the little farmhouse north of Beziers I am renting for a week. Someone should tell Dealmaker; the Côte is so passé, everyone knows Languedoc is the new Provence. So much more Peter Mayle, darling.

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